REPORT DIGEST
REGIONAL OFFICE OF EDUCATION #14
SUBURBAN COOK COUNTY
Financial Audit
For the Year Ended June 30, 2009
Summary of Findings:
Total this audit: 11
Total last audit: 12
Repeated from last audit: 11
Release Date: March 30, 2011
State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, AUDITOR GENERAL
To obtain a copy of the Report contact:
Office of the Auditor General, Iles Park Plaza, 740 E. Ash Street, Springfield, IL 62703
(217) 782-6046 or TTY (888) 261-2887
This Report Digest and Full Report are also available on the worldwide web at www.auditor.illinois.gov
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SYNOPSIS
In the audit for the one year period ending June 30, 2008,
auditors disclaimed an opinion on the financial statements of Regional Office
of Education #14. To allow the Regional
Office time to prepare its financial reports for the fiscal year 2009 audit,
the auditors delayed beginning audit work at the Regional Office until January
2010, at which time the Regional Office had still not compiled the necessary
information. During April and May the
Regional Office provided some of the information requested by the auditors.
The Regional Office noted that certain information needed to
prepare its financial reports as well as other information was taken by the
Cook County State's Attorney's Office and not returned until May 10, 2010. In June 2010, the auditors conducted
fieldwork at the Regional Office and received additional reports and
information. However, the Regional
Office #14 went out of existence on June 30th and all requested information had
not been provided to the auditors. In
the fall of 2010, the auditors, in coordination with the Illinois State Board
of Education, reviewed Regional Office files that were transferred to
Intermediate Service Center #2. However,
there was still significant information that the auditors were unable to
obtain. Consequently, because of the
overall lack of internal controls, questions as to the accuracy and
completeness of the general ledger, and problems noted in other findings throughout
this report, auditors issued a disclaimer of opinion on the financial
statements for the year ended June 30, 2009.
Other findings in this report concluded that the Regional
Office of Education #14:
• did not have sufficient internal controls over the
financial reporting process.
• had liabilities which exceeded its total net assets by
over $1 million.
• used spreadsheets to process financial information, which
is not an accounting software package designed for governmental entities.
• did not timely complete certain monthly reconciliations of
its bank statements and pooled cash accounts.
• had inadequate controls over property and equipment.
• provided cash advances to two employees for non-business
related purposes.
• paid a total of $1,080 for purchase finance charges, $194
for cash advance finance charges, $738 for late fees, and $70 in other
miscellaneous service charges.
• lacked documentation to support many credit card
purchases.
• had deficiencies in payroll transactions.
• used Institute Funds for unallowable expenditures under 105 ILCS 5/3-12.
FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
INADEQUATE INTERNAL CONTROL OVER DISBURSEMENTS
The Regional Office of Education #14 did not have adequate
internal control over disbursements.
Auditors noted the following weaknesses in the Regional Office’s
internal control system:
a. In 9 of 25
transactions tested, there was no invoice to support the expenditure.
b. In 3 of 25
transactions tested, the approval of expenditures before payment was made by a
bookkeeper, as opposed to a member of management.
c. In 1 of 25
transactions tested, the amount paid was incorrectly calculated. An employee
was reimbursed $1 for each mile traveled.
A mileage reimbursement rate was not applied to the miles traveled.
d. In 1 of 25
transactions tested, it was noted that sales taxes were paid. The Regional Office is exempt from the
payment of sales tax but did not provide documentation to the vendor to avoid
paying the sales tax.
e. In 1 of 25
transactions tested, an expenditure was not recorded in the proper fund.
f. In 2 of 25
transactions tested, expenditures were recorded as supplies and materials, when
they should have been recorded as purchased services.
g. In 1 of 25
transactions tested, a reimbursement was paid prior to receiving a supporting
receipt of the expense. The
reimbursement was subsequently reimbursed by the employee.
h. In 2 of 25
transactions tested, the Regional Office was unable to provide contracts for
vendors who were paid for performing services for a grant program. There was no evidence of management reviewing
and approving the salaries and benefits paid to these vendors.
i. In 1 of 25 transactions
tested, the date on an invoice indicated that services were provided in
November 2008, however the payment voucher indicated that the payment was for
services provided in February of 2009.
Auditors were unable to ascertain if the invoice attached to the payment
voucher was related to the expense being requested for payment.
j. In 11 of 25
transactions tested, a cancelled check image was not provided to auditors.
k. In 1 of 5
transactions tested, the original voided check was not provided to auditors as
proof of the check being voided.
Because of the overall lack of internal controls, which
resulted in the problems listed above, questions as to the accuracy and
completeness of the general ledger, and problems noted in other findings
throughout this report, auditors terminated work before testing was completed
and issued a disclaimer of opinion on the financial statements for the year
ended June 30, 2009.
The Regional Office of Education is responsible for
establishing and maintaining an internal control system over disbursements and
reimbursements to prevent errors and fraud.
The internal control weaknesses noted above could result in
unintentional or intentional errors or misappropriation of assets, where the
errors or fraud could be material to the financial statements and may not be detected
and corrected in a timely manner by employees in the normal course of
performing their assigned duties. (Finding 09-4, pages 15-16)
Auditors recommended that the Regional Office of Education
#14 assure that a system of internal controls has been established and is
maintained to control disbursements and prevent errors and fraud.
CONTROLS OVER FINANCIAL STATEMENT PREPARATION
The Regional Office of Education #14 is required to maintain
a system of controls over the preparation of financial statements in accordance
with generally accepted accounting principles (GAAP). Regional Office internal controls over GAAP
financial reporting should include adequately trained personnel with the
knowledge and expertise to prepare and/or thoroughly review GAAP based
financial statements to ensure that they are free of material misstatements and
include all disclosures as required by the Governmental Accounting Standards
Board (GASB).
For the fiscal year ended June 30, 2008, auditors disclaimed
an opinion on the financial statements of Regional Office of Education
#14. To allow the Regional Office time
to compile the necessary information and prepare its financial reports for the
fiscal year 2009 audit, the auditors delayed beginning audit work at the
Regional Office until the week of January 25th, 2010. While the auditors conducted preliminary work
at the Regional Office during the week of January 25th, the Regional Office had
not prepared the information needed to conduct the audit.
Auditors planned to return the week of March 15th when
Regional Office staff indicated that the necessary information would be
prepared. However, the necessary reports
were not prepared and auditors did not return to the Regional Office for
substantive testing during the week of March 15th. In April and May the Regional Office provided
some but not all the information requested by the auditors.
The Regional Office noted that certain information needed to
prepare its financial reports as well as other information was taken by the
Cook County State's Attorney's Office and not returned until May 10, 2010. In June 2010, the auditors conducted
fieldwork at the Regional Office and received additional reports and
information from them. However, the
Regional Office went out of existence on June 30th and all requested
information had not been provided to the auditors. In the fall of 2010, the auditors, in
coordination with the Illinois State Board of Education, reviewed Regional
Office files that were transferred to Intermediate Service Center # 2. However, there was still a significant amount
of information that the auditors were unable to obtain.
There were not sufficient controls over the preparation of
the GAAP based financial statements for management or employees in the normal
course of performing their assigned functions to prevent or detect and correct
financial statement misstatements and disclosure omissions in a timely manner.
For example, auditors, in their review of the Regional Office’s accounting
records, noted the following:
• The Regional Office did not maintain adequate internal
controls over the processing of all financial transactions and numerous
adjustments would be required to present financial statements in accordance
with generally accepted accounting principles.
• The Regional Office did not have adequate controls over
the maintenance of complete records of deferred revenue, payroll, general
disbursements, or capital assets.
• Due to the inadequate controls noted above, the Regional
Office’s trial balance was inaccurate.
The following issues were noted:
– Depreciation of capital assets was not recorded in the
general ledger by the Regional Office.
– Deferred revenue for grant monies received after 60 days
of the fiscal year end was not properly adjusted by the Regional Office.
– Many of the fund balance accounts listed on the trial
balance received from the Regional Office did not agree to the amounts reported
in the prior year. The Regional Office
made adjustments to the beginning fund balances, however, support for these
adjustments was not provided to the auditors.
For financial statement presentation, the prior year ending balances
were used as the beginning balances.
There was a lack of management oversight and review of
financial information on a timely basis. (Finding 09-1, pages 10-12)
The auditors recommended that, as part of its internal
control over the preparation of its financial statements, including
disclosures, the Regional Office of Education #14 should implement a
comprehensive preparation and/or review procedure to ensure that the financial
statements, including disclosures, are complete and accurate. Such procedures should be performed by a
properly trained individual(s) possessing a thorough understanding of
applicable generally accepted accounting principles, GASB pronouncements, and
knowledge of the Regional Office of Education #14’s activities and operations.
CONTINUATION AS A GOING CONCERN
The Suburban Cook County Regional Office of Education #14’s
liabilities exceeded its total net assets by $1,088,372 as of June 30, 2009. The deficiency of revenues over expenditures
was $146,528 for the year ended June 30, 2009.
On June 17, 2008, the Regional Office obtained a loan from
Cook County in the amount of $190,000.
This loan was used to finance Regional Office operations. The Regional Office of Education failed to
make the required repayment of $190,000, which was due to the County on June
30, 2009.
It was also noted that the Regional Office had a payable
balance to a single vendor that had accumulated to $103,080 as of June 30,
2009. Furthermore, during review of
credit card statements, it was noted that 2 cash advances totaling $11,000 were
received by the Regional Office. The
cash was deposited into the Regional Office bank account to be used for
operations.
All audits conducted in accordance with generally accepted
auditing standards require the auditor to evaluate the entity’s financial
position and contemplate the continuation of the entity as a going
concern. In the current and previous
fiscal years, there were questionable uses of Regional Office funds, which
contributed to the financial problems of the Regional Office. Regional Office officials have previously
stated that the Suburban Cook County Regional Office of Education #14 is the
only Regional Office of Education in the State of Illinois that does not
receive funding from its respective county.
(Finding 09-2, page 13)
Auditors recommended that the Suburban Cook County Regional Office of Education #14 should attempt to streamline operations so that expenditures are lowered and/or continue to seek additional funding sources. The Regional Office should establish a plan to reduce outstanding balances owed to vendors and ensure that amounts are available to pay debt balances. As of July 1, 2010, the Regional Office of Education was abolished.
INADEQUATE ACCOUNTING SOFTWARE AND INTERNAL CONTROLS
The Regional Office of Education #14 used spreadsheets to
process financial information, which is not an accounting software package
designed for governmental entities. The
spreadsheets do not provide the internal controls and reporting features
required for proper fund accounting. The
Regional Office had previously purchased a new accounting system but had not
placed it into service.
The Regional Superintendent of Schools is responsible for
establishing and maintaining an internal control system to prevent errors and
irregularities. In addition, the
Regional Office of Education is required by the Illinois State Board of Education
to maintain their accounting system in accordance with the Regional Office of
Education Accounting Manual.
With the use of spreadsheets, management cannot easily
obtain entity-wide financial information necessary to make informed management
decisions. Without an accounting system
with proper internal controls, errors or misappropriations may have occurred
and not be detected by management. In
addition, financial statements in accordance with generally accepted accounting
principles and the Regional Office of Education Accounting Manual cannot be
readily prepared from the current accounting system.
A new accounting software package had not been implemented
at the office that would have allowed the Regional Office to maintain an
accounting system with internal controls and reporting features required for
proper fund accounting. (Finding 09-3,
page 14)
Auditors recommended that the Suburban Cook County Regional
Office of Education #14 implement an accounting software application that
provides the necessary controls and reporting features required for proper fund
accounting. The accounting system should
have the capabilities necessary for the Regional Office to be in compliance
with the Regional Office of Education Accounting Manual and provide the
reporting detail necessary to prepare financial statements in accordance with
generally accepted accounting principles.
RECONCILIATION OF BANK STATEMENTS AND POOLED CASH ACCOUNTS
The Suburban Cook County Regional Office of Education #14
maintained pooled cash accounts for many of their funds. The Regional Office did not complete at least
the first 6 of 12 monthly reconciliations of its bank statements and pooled
cash accounts for fiscal year ended June 30, 2009 in a timely manner. These
were completed subsequent to December 2008 after auditors brought the situation
to the attention of management.
Reconciliations of the bank statements and pooled cash
accounts were not completed timely throughout the year. The bank statements and pooled cash accounts
should be reconciled in a timely manner and not less than monthly. (Finding 09-5, page 17)
Auditors recommended that the Regional Office ensure all
bank statements and pooled cash accounts are reconciled timely and not less
than monthly.
INADEQUATE CONTROLS OVER PROPERTY AND EQUIPMENT
The Regional Office of Education #14 had inadequate controls
over property and equipment. The
Regional Office of Education (ROE) Accounting Manual requires each Regional
Office to maintain detailed fixed asset records for both accounting purposes as
well as insurance purposes, for fixed assets costing $500 or more. Generally accepted accounting principles require
that inventory of all fixed assets and depreciation schedules for assets
meeting the capitalization threshold for reporting are maintained.
Sound internal controls require that policies and procedures
on fixed assets should cover acquisition and tagging, recording and reporting,
depreciation (if applicable), transfers and dispositions, and annual physical
inventory, and that they should be formally documented and consistently
applied.
An updated fixed asset listing was not properly maintained
by the Regional Office during the year.
The fixed asset listing that was provided to auditors was inaccurate and
incomplete. Many of the required details
such as purchase date, cost, useful life, etc were not provided. Also, depreciation was not calculated for a
majority of the items on the listing.
The information provided was unreliable, and auditors were unable to
obtain information to accurately reflect fixed assets maintained by the
Regional Office.
The absence of a sound system of internal controls can
result in inaccurate reporting of fixed assets and inadequate physical control
for equipment items. An incomplete fixed
asset listing does not provide an adequate basis for physical control and
losses may occur without being detected.
The fixed asset listing was not updated when asset purchases
occurred and the depreciation section of the listing was incomplete for some of
the assets. (Finding 09-6, pages 18-19)
Auditors recommended that the Regional Office of Education
#14 should adhere to the Regional Office of Education Accounting Manual and
should check the fixed asset listing for accuracy and existence through an
annual physical inventory.
Reconciliations should be performed between the fixed asset listing and
the recorded capital outlay expenditures for the year. Finally, depreciation should be calculated
and tracked for all fixed assets.
CASH ADVANCES TO EMPLOYEES
The Regional Office of Education #14 provided cash advances
to employees in 2 instances and the advances were not timely repaid in
accordance with terms of the advance contract.
In both instances, contracts were signed by the Regional Superintendent
and stipulated terms for repayment through payroll check deductions. Neither of the contracts required collateral
or security in the event that the employee ceased employment at the Regional
Office.
• During fiscal year 2008, the Regional Superintendent
approved a cash advance for $6,000 to an employee, who is also his family
relative, for purposes not related to Regional Office operations. Repayments were to occur each pay period
starting on April 4, 2008 and final payment due on December 31, 2008. The
payroll records indicated that repayments started in September 2008 and were
made consistently through April 2009. An
additional payment, in an amount in excess of the required payment, was also
made in May 2009. As of June 30, 2009,
the balance of the repayment was $1,000 based on the general ledger prepared by
the Regional Office and provided to auditors.
• During fiscal year 2008, the Regional Superintendent
approved a cash advance for $9,000 to an employee for purposes not related to
Regional Office operations. Repayments
were to occur each pay period starting on November 16, 2007 (FY 08) and the
final payment due on July 11, 2008 (FY 09).
Per the payroll records, the last advance payment was received by the
Regional Office on August 22, 2008.
Prior to the use of the outside payroll vendor which began in February
2008, the auditors could not readily determine whether repayments had been
made. According to Regional Office
officials, the advance was repaid as of June 30, 2009.
Internal controls should ensure that expenses incurred by
the Regional Office are adequately documented, incurred for a business purpose,
and represent economical and effective use of Regional Office resources. The Regional Office should also have adequate
controls in place over the processing of payroll to ensure that deductions are
accurate and timely. Non-business purpose cash advances result in an improper
use of Regional Office financial resources.
Inadequate monitoring of advance repayments may result in monies not
being repaid to the Regional Office.
(Finding 09-7, pages 20-21)
Auditors recommended that the Regional Office of Education
#14 should discontinue the practice of providing payroll advances to
employees. For those payroll advances
already granted, the Regional Office should seek repayment of those advances as
expeditiously as possible.
PAYMENT OF FINANCE CHARGES, LATE FEES, TRANSFER FEES, OTHER
SERVICE CHARGES, AND SALES TAXES
The Suburban Cook County Regional Office of Education #14
had 6 credit cards assigned to various employees. Per review of credit card statements received
by the auditors, it was noted that $1,080 was incurred for purchase finance
charges, $194 for cash advance finance charges, $738 for late fees, and $70 in
other miscellaneous service charges.
Approximately $1,254 of the total $2,082 in charges was incurred on the
Regional Superintendent’s credit card.
Auditors noted during their review of bank statements, that
the Regional Office paid $96 during fiscal year 2009 for performing wire
transfers from their operating bank account.
In addition, in 1 of 25 transactions tested, it was noted that
sales tax was paid on a Regional Office purchase.
Internal controls should exist to ensure that bills are paid
in a timely fashion. In addition,
controls should be in place to ensure that sales taxes are not paid by the
Regional Office. Payment of finance
charges, late fees, transfer fees, other service charges, and sales taxes
results in an ineffective use of Regional Office financial resources. (Finding 09-8, page 22)
Auditors recommended that the Regional Office of Education
#14 should strengthen its internal controls to ensure that credit card bills
are paid in a timely manner, reduce or eliminate the amount of transfer fees
and other service charges incurred, and ensure that sales taxes are not
incurred on goods purchased by the Regional Office.
USE OF REGIONAL OFFICE CREDIT CARDS
The Suburban Cook County Regional Office of Education #14
had 6 credit cards assigned to various employees. There was an overall lack of documentation to
support credit card purchases. The
majority of credit card statements did not have supporting receipts and
documentation attached to them or the related payment vouchers. The Regional Office was unable to provide
auditors with supporting receipts for 15 of the 26 items selected for
testing. Of the 11 receipts obtained,
the Regional Office failed to document the business purpose of the expense for
7 items including meal purchases, airline tickets, rental cars, and hotels.
Internal controls should ensure that expenses incurred by
the Regional Office are adequately documented, incurred for a business purpose,
and represent economical and effective use of Regional Office resources. Lack of adequate controls increases the
susceptibility of Regional Office funds being used for questionable activities
or abuse. The condition was caused by
inadequate controls over the reporting and review of credit card purchases.
(Finding 09-9, page 23)
The auditors recommended the Regional Office of Education
#14 should ensure that appropriate documentation is provided for all credit
card expenditures. Additionally, the
Regional Office of Education should establish a policy regarding the use of
Regional Office credit cards, including requiring that each transaction has
adequate documentation showing the business purpose of the expenditure.
QUESTIONABLE PAYROLL PAYMENTS
Assistant Regional Superintendents are paid by the State of
Illinois. These payments come directly
from the State of Illinois for their services as Assistant Regional
Superintendents. In fiscal year 2009,
one Assistant Regional Superintendent at the Suburban Cook County Regional
Office of Education #14 was paid $89,579 of salaries and benefits for a full
year of work.
In addition to the salary payment indicated above, this
Assistant Regional Superintendent was paid monies by the Regional Office for
services related to a federal grant. The
Assistant Regional Superintendent was paid $7,333 in fiscal year 2009. When the Regional Office determined these
payments as questionable costs, a receivable in the amount of $7,333 was booked
in the general fund, and the expenses were removed from the federal
program. Subsequent reimbursement
requests (some requested mileage reimbursements dated back to the beginning of
the fiscal year) submitted for payment by the Assistant Regional Superintendent
were not paid out but were netted against the established receivable
balance. As of June 30, 2009, the
Regional Office of Education’s general ledger records indicated that the
remaining receivable balance was $3,872 from the Assistant Regional
Superintendent.
There were also many deficiencies noted during the review of
payroll transactions. Of the 23
employees selected for testing, 7 employees did not have proper documentation
of their current pay rate. Ten of the 21
hourly employees tested did not have a supporting timecard for the pay period
tested. Of the 11 employees that had a
supporting timecard for the pay period tested, 2 of these timecards did not
have signature of approval from a supervisor.
Additionally, when reviewing timecards, it was noted that inconsistent
procedures were used. For example, one
employee indicated that they worked from 8:30am to 4:30pm with a half hour
lunch and recorded 8 hours for the day.
Another employee worked the same hours with a one hour lunch and
recorded 8 hours for that day. It was
also noted in some instances that an employee would take a shorter or longer
lunch than a previous day, or arrive earlier or later than a previous day, yet
the hours recorded were the same as the previous day.
The Regional Office of Education is responsible for ensuring its resources are efficiently used and that payroll payments are accurate. In addition, inadequate controls over the payroll process can result in unintentional or intentional errors, where the errors or fraud could be material to the financial statements and may not be detected in a timely manner by employees in the normal course of performing their assigned duties. (Finding 09-10, pages 24-25)
Auditors recommended the Regional Office of Education should
not provide additional salary compensation to employees who are already
receiving a full-time salary. In
addition, the Regional Office should establish a policy to ensure that employee
hours are documented in a consistent manner and that all employees are being
held to similar standards. The Regional
Office should keep an adequate payroll file for each employee that contains
pertinent information including approved contracts stipulating employee pay
rates. The Regional Office should also
ensure that when required, employee timecards are obtained and approved prior
to issuing employee paychecks.
RESTRICTED FUNDS USED FOR UNAUTHORIZED PURPOSE
The Regional Office of Education #14 used pooled cash
accounts and Regional Office records indicate the Institute Fund loaned the
General Fund cash in order to pay for expenses that may not have been in
compliance with 105 ILCS 5/3-12 of the Illinois School Code.
At June 30, 2009 the Institute Fund had a balance in the
“due from other funds” account of $686,054. The Institute Fund appears to have
loaned the General Fund funds, because the General Fund had a balance in its
“due to other funds” account of $700,469 at June 30, 2009. Further, the General Fund’s expenditures
exceeded its receipts by $459,987 in the current year while the Institute
Fund’s receipts exceeded expenditures by $387,628.
The Illinois School Code 105 ILCS 5/3-12 states that the
Regional Superintendent shall use the Institute Fund to defray expenses
incidental to teacher’s institutes, workshops or meetings of a professional
nature that are designed to promote the professional growth of teachers or for
the purpose of defraying the expense of any general or special meeting of
teachers or school personnel of the Region.
The School Code 105 ILCS 5/3-12 was amended by Public Act 96-893 which
in addition to the items noted above, allows the Institute Fund to be used “to
defray all costs associated with the administration of teaching certificates”.
Public Act 96-893 was effective July 1, 2010 (FY11) and therefore, was not
effective during the period covered by this audit.
The Regional Office of Education #14 received the majority
of its funding from two sources. The
first source was the Institute Fund. The
primary responsibility of the Regional Office of Education #14 is the
processing of teaching certificate renewals for the school districts in
Suburban Cook County. The Regional
Office retains a portion of each certificate renewal fee to use in compliance
with the requirements outlined in 105 ILCS 5/3-12. According to 105 ILCS 5/3-12, the costs
associated with processing the certificate renewals themselves is not an
allowable cost. The second is from the
State of Illinois for operational costs and the majority of that funding is
paid out to the Intermediate Service Centers.
Consequently, the Regional Office did not have enough unrestricted
funding sources available to carry out the responsibilities associated with the
teacher certification and registration process and it used the Institute Fund
to support these costs. (Finding 09-11, pages 26-27)
Auditors recommended that the Regional Office of Education
#14 should use Institute Funds only for purposes delineated by 105 ILCS
5/3-12. The Regional Office should also
seek additional funding sources in order to fund the operations of the office
without being in violation of any State regulation.
AUDITORS’ OPINION
Our auditors expressed a disclaimer of opinion on the
Suburban Cook County Regional Office of Education #14’s basic financial
statements as of June 30, 2009.
WILLIAM G. HOLLAND
Auditor General
WGH:KJM
AUDITORS ASSIGNED: Winkel, Parker, & Foster, CPA, PC were our special assistant auditors.